Circular of the SA FE on Relevant Business Operations Issues Concerning Improvin

The branches and the foreign exchange administration departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government, the branches of the State Administration of Foreign Exchange in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo, and all Chinese-funded designated foreign exchange banks:

In order to improve the foreign exchange administration of foreign-funded enterprises, to facilitate the verification, payment, and settlement of foreign exchange capital (hereinafter referred to as the capital) of the foreign-funded enterprises, and to standardize the relevant business operations of the designated foreign-exchange banks (hereinafter referred to as the banks) and accounting firms, we hereby, in accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration and the relevant provisions, provide notification on relevant business operations issues concerning the administration of the payment and settlement of the capital of foreign-funded enterprises after the running of the Foreign Exchange Business Information System for Direct Investment of the SAFE (hereinafter referred to as the Investment System) as follows:

`. Where a foreign-funded enterprise applies to a bank for settlement of foreign exchange, it shall go through the capital verification procedures at an accounting firm in advance. The accounting firm shall, after confirmation of the capital verification to the State Administration of Foreign Exchange and its branches (hereinafter referred to as the Administration of Foreign Exchange), issue a capital verification report to the enterprise. No bank shall handle the settlement of capital for which the capital verification procedures have not been completed.

The cumulative amount of the settlement of capital handled by a bank for a foreign- funded enterprise shall not exceed the cumulative amount of the verified capital of the said foreign-funded enterprise.

 

a. Accounting firm inquiries about the capital contribution of foreign parties to the Administration of Foreign Exchange for the purpose of the verification of capital of a foreign-funded enterprise and a banks settlement of capital of a foreign-funded enterprise shall be handled through the SAFE Investment System.

 

b. A bank shall handle the payment and settlement of capital for a foreign-funded enterprise in line with the administrative rules of the SAFE regarding the payment and settlement of foreign exchange.
The RMB obtained from the settlement of capital of a foreign-funded enterprise shall be used within the business scope granted by the government approval department. Unless otherwise specified, the RMB obtained from the settlement of capital shall not be used for domestic equity investment. Other than a foreign-funded real estate enterprise, no foreign-funded enterprise shall use the RMB obtained from the settlement of capital to purchase domestic real estate for any purpose other than its own use. A foreign-funded enterprise shall use the RMB obtained from the settlement of capital for securities investment in line with the relevant provisions of the state.
An investment-oriented foreign-funded enterprise approved by the commercial administrative department to conduct domestic equity investments shall handle the domestic transfer of capital only after approval by the Administration of Foreign Exchange.

 

c. Where a foreign-funded enterprise applies for the settlement of capital to a bank, it shall submit the following materials:

 

(a). The foreign exchange registration IC card of the foreign-funded enterprise.

 

(b). A Letter of Payment Order for the RMB obtained from the settlement of capital (see the format in Annex 1).

 

The Letter of Payment Order refers to a written order issued and signed by an enterprise or an individual, based on which a bank makes an external payment with the RMB obtained from the settlement of capital.

 

(c). Documents certifying the purpose of the RMB obtained from the settlement of capital.
The certification documents shall include the commercial contract or the payment notice provided by the payee.  The payment notice shall contain the main clauses of the business contract, the amount of money, the name and bank account number of the payee, the purpose of the capital, and other items in the commercial contract. Where an enterprise repays an RMB loan with RMB obtained from the settlement of capital, an explanation indicating that the loan capital has been used within the approved business scope and according to the terms of the contract shall be submitted.

 

(d). The latest capital verification report (accompanied by a reply letter to the inquiry letter with respect to the capital contribution of the foreign party) provided by an accounting firm.

 

(e). Relevant certificates of the external payment with the RMB obtained from the preceding settlement of capital in line with the Letter of Payment Order, a detailed list of the allocation thereof (see the format in Annex 2), and a duplicate copy of the relevant vouchers, such as an invoice with the enterprises official seal or financial seal. Where the settlement of capital is in a lump sum or is the final installment in the settlement of capital, the enterprise shall submit the above-mentioned materials to the bank within 5 working days from the date of the settlement.

 

(f). Other supplementary materials as required by the bank.
For the settlement of the foreign exchange reserve fund of an enterprise in an amount equivalent to USD 50,000 or less, the enterprise need not submit the documents as listed in (c) and (e), and the settlement of the interest in its capital account can be directly handled with the interest list provided by the bank.
The bank shall carefully examine the authenticity and legality of the purposes of the RMB obtained from the settlement of capital of the foreign-funded enterprise.  If the materials are inconsistent or contradict one another, the bank shall not handle the relevant business for the enterprise.

 

d. Where the capital account and the RMB account of a foreign-funded enterprise are opened at the same bank, the bank handling the settlement of capital shall go through the procedures for the settlement of capital and entry into the RMB account and transfer of the external payment on the same day; where the two accounts are not opened at the same bank, when transferring the RMB from the settlement of capital, the bank shall clearly mark the capital transfer voucher with the wording  settlement of capital. The inward transfer bank of the RMB shall handle the transfer procedures of the capital in line with the Letter of Payment Order within 2 working days (including the day of the inward transfer).
Where the settlement of capital of an enterprise is used for the reserve fund turnover or the payment of salaries and bonuses, the RMB obtained from the settlement of capital may be retained in the RMB account of the enterprise.

 

e. With respect to foreign exchange received by a domestic institution or an individual for transferring the holding stock or equity of domestic enterprises to foreign investors hereinafter referred to as the

Equity Transfer Consideration, the entry into the account and settlement thereof shall be handled through the special foreign exchange account for assets realization. The opening of the special foreign exchange account for assets realization and the entry of the capital into the account shall be approved by the local Administration of Foreign Exchange in accordance with the relevant provisions, and the bank shall handle the relevant business upon receipt of the approval instrument provided by the local Administration of Foreign Exchange.

Where a domestic institution or individual is prepared to handle the capital settlement in the special foreign exchange account for assets realization, it shall, in line with the relevant requirements of the system for the payment and settlement of foreign exchange, apply directly to the bank by presenting the following materials:

(I) A Letter of Payment Order of the RMB obtained from the settlement of capital (see format in Annex 3).

 

(II) A document certifying the purposes of the RMB obtained from the settlement of capital.

 

(III) Relevant certificates of the external payment of the RMB obtained from the preceding settlement of capital in line with the Letter of Payment Order, a detailed list of the allocation thereof (see the format in Annex 4), and a duplicate copy of the relevant vouchers, such as an invoice with the enterprises official seal or financial seal. Where the settlement of capital is in a lump sum or is the final installment of settlement of capital, the domestic institution or individual shall submit the above-mentioned materials to the bank within 5 working days after the date of the settlement.

 

f. When a bank handles fund transfer business for a foreign-funded enterprise, such as a fixed deposit of capital, the forward settlement and sale of foreign exchange, and a swap or a structured deposit of capital and other capital transfer businesses that are under the same account and do not need the approval of the local Administration of Foreign Exchange, it shall handle the business in a different sub-account under the same account; the transferred capital shall be included in the quota for the capital account and administered within the income-expenditure range thereof, and shall not be transferred to other accounts in violation of the regulations.

 

g. The bank shall, in accordance with this Notice and the relevant provisions, strictly examine the materials submitted by the foreign-funded enterprise applying for the settlement of capital, and shall provide information in a timely manner about the settlement of capital to the local Administration of Foreign Exchange through the SAFE Investment System. The information from the bank shall automatically be entered into the SAFE Enterprise Foreign Exchange Information Archival Database.

 

h. The Administration of Foreign Exchange shall, in accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration and other relevant provisions, strengthen supervision of banks handling such business as the settlement of capital for foreign-funded enterprises, and shall conduct extended inspections on the flow and use of the capital and on the RMB obtained from the settlement of capital of foreign-funded enterprises. Where cases of the following violations are found, the Administration of Foreign Exchange shall issue punishments in line with the relevant provisions in Article 44 of the Regulations of the Peoples Republic of China on Foreign Exchange Administration:

 

(a). Changing the purposes of the RMB obtained from the settlement of capital without authorization;

 

(b). Repaying the unused RMB loan with RMB obtained from the settlement of capital.

 

i. This Notice shall come into force as of the date of promulgation. As for those Notices such as the Circular of the State Administration of Foreign Exchange Concerning the Trial Reform of the Management Mode for the Settlement of Foreign Exchange Capital under the Foreign Investment Account (Huifa No. [2001] 141), the Circular of the State Administration of Foreign Exchange on Reforming the Management Mode for the Settlement of Foreign Exchange Capital under the Foreign Investment Account (Huifa No. [2002] 59),  the Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning the Improvement of Foreign Exchange Administration relating to Direct Investment by Foreign Investors (Huifa No. [2003] 30), and the Circular of the State Administration of Foreign Exchange on Improving the Examination of Foreign Exchange Settlement under the Capital Account and the Management of the Registration of the External  Debts of Foreign-Funded Enterprises (Huifa No. [2004] 42), when the documents thereof relating to the administration of capital and the settlement of capital are inconsistent with this Notice, this Notice shall prevail.

 

j. All branches and foreign exchange management departments of the SAFE shall, upon receipt of this Notice, forward it to all sub-branches, urban commercial banks, rural commercial banks, foreign-funded banks, and accounting firms within their respective jurisdictions; all Chinese-funded designated foreign exchange banks shall, upon the receipt of this Notice, forward it to their subordinate branches.
If any entity encounters any problems in the implementation of this Circular, please send feedback to the State Administration of Foreign Exchange at 010-68402365 in a timely manner.